The scarcity of human adult islets available for transplantation in IDDM makes the use of human fetal pancreatic cells desirable. Human fetal pancreatic cells grow and differentiate after transplantation in nude mice. It is unclear whether proliferation of preexisting endocrine cells or differentiation of precursor cells is mainly responsible for the increased islet mass and if beta-cell enrichment before transplantation enhances the functional outcome of the graft. To answer these questions, we transplanted purified human fetal islets, islet-like cell clusters (ICCs), and fresh tissue under the kidney capsule of nude mice. Insulin content was highest in the fresh tissue but fell rapidly during culture as either fetal islets or ICCs. Although fetal islets contained fourfold more insulin than ICCs before transplantation, the insulin content of the resulting grafts was the same after 3 months in vivo. The degree of stimulation after glucose challenge was comparable; however, more tissue was needed to generate the fetal islets. Grafts of fresh tissue also had similar total insulin contents, but when normalized to DNA, insulin concentration was significantly higher in the grafts from cultured tissue. Moreover, there were distinct morphological differences; the grafts from fresh tissue were more fibrous, with prominent ductal and cystic elements. Grafts from cultured tissue were two- to threefold enriched in endocrine tissue when compared with grafts originating from fresh tissue. These results suggest that islet cells identified in the grafted ICCs are mainly derived through differentiation of endocrine precursors and that cultured ICCs are more preferable than either fetal islets or uncultured tissue for transplantation.